Correlation Between Energy Resources and NexGen Energy

Can any of the company-specific risk be diversified away by investing in both Energy Resources and NexGen Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Energy Resources and NexGen Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Energy Resources of and NexGen Energy, you can compare the effects of market volatilities on Energy Resources and NexGen Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Energy Resources with a short position of NexGen Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Resources and NexGen Energy.

Diversification Opportunities for Energy Resources and NexGen Energy

0.16

Correlation Coefficient

Energy Resources  NexGen Energy

Average diversification

The 3 months correlation between Energy and NexGen is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Energy Resources of and NexGen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexGen Energy and Energy Resources is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Energy Resources of are associated (or correlated) with NexGen Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NexGen Energy has no effect on the direction of Energy Resources i.e., Energy Resources and NexGen Energy go up and down completely randomly.

Pair Corralation between Energy Resources and NexGen Energy

Assuming the 90 days horizon Energy Resources of is expected to generate 10.46 times more return on investment than NexGen Energy. However, Energy Resources is 10.46 times more volatile than NexGen Energy. It trades about 0.07 of its potential returns per unit of risk. NexGen Energy is currently generating about 0.07 per unit of risk. If you would invest  15.00  in Energy Resources of on January 25, 2024 and sell it today you would lose (10.00) from holding Energy Resources of or give up 66.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Energy Resources of  vs.  NexGen Energy

Energy Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Resources of are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Energy Resources reported solid returns over the last few months and may actually be approaching a breakup point.

NexGen Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NexGen Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, NexGen Energy may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Energy Resources and NexGen Energy

The main advantage of trading using opposite Energy Resources and NexGen Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Resources position performs unexpectedly, NexGen Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in NexGen Energy will offset losses from the drop in NexGen Energy's long position.

The idea behind Energy Resources of and NexGen Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .